Secondary Sources: Foreclosures, European Crisis, Gold

–Foreclosures:Barry Ritholtz has dedicated a series of blog post to the housing market. Today he looks at foreclosures. “Once we begin to see an increase in foreclosures, the data is going to be far less accommodating. Monthly prices start falling, fear levels rise, and a viscous cycle could begin. Consider the recent college grads, who typically form each wave of first time buyers. From their perspectives, this whole housing thing must seem absurd. Their observations about home ownership is not the American Dram, but rather, a nightmare. Yale professor Robert Shiller worries that we have lost an entire generation of potential home buyers. He fears that we have the potential of decades long stagnation, as bad as Japan. Ultimately, lower prices brought about by foreclosures help to restore normalized pricing and encourage first time buyers. But it is a wrenching painful process that has not been easy to live through. All of the data that I review strongly suggest we are not yet through it. Until we clear much of these foreclosed homes, a sustainable recovery is unlikely to appear.”

–European Crisis:Ken Rogoff makes the case that without more integration, the euro zone won’t hold. “European policymakers today often complain that, were it not for the US financial crisis, the eurozone would be doing just fine. Perhaps they are right. But any financial system must be able to withstand shocks, including big ones. Europe may never be an “optimum” currency area by any standard. But, without further profound political and economic integration – which may not end up including all current eurozone members – the euro may not make it even to the end of this decade.”

–Gold:Felix Salmon examines why the price of gold is going up and what it says and doesn’t say about inflation. “Why is the price of gold going up? Simple: when interest rates are this low, bonds are increasingly unattractive as a source of yield, so you might as well just buy stuff — call it SWAG — instead. SWAG doesn’t have any yield, but then again, neither does cash, really. And when there aren’t attractive investments out there, then it becomes more attractive to spend money rather than to invest it. As a result, people spend their money on SWAG, and some of them even kid themselves while doing so that by buying their SWAG they’re making some kind of investment. They’re not. And they’re certainly not producing a reliable guide to the future status of the US dollar.”

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